[DEBATE] : (Fwd) Sachs v carbon trading

[Patrick Bond]

ONLINE AT HTTP://WWW.IISD.CA/YMB/CLIMATE/EIDCC/
VOLUME 154, NO. 1, FRIDAY, 10 OCTOBER 2008
A Summary Report of the High-Level Discussion on
the Kyoto Mechanisms
Published by the International Institute for Sustainable Development (IISD)

HIGH-LEVEL DISCUSSION ON
THE KYOTO MECHANISMS:
THURSDAY, 9 OCTOBER 2008

A high-level discussion on the role of the Kyoto Protocol’s
flexible mechanisms was held at Columbia University in New
York, US, on Thursday, 9 October 2008. The event took as its
theme, “The Kyoto Mechanisms: Key to Combating Climate
Change?”
Much of the two-hour event involved a discussion between
Yvo de Boer, Executive Secretary of the UN Framework
Convention on Climate Change (UNFCCC), and Jeffrey Sachs,
Director of the Earth Institute at Columbia University. These
two key speakers and other experts debated the merits of the
Kyoto mechanisms and carbon taxes in reducing greenhouse
gas emissions.
The aim of the discussion was to help focus attention on
market-based mechanisms, carbon taxes and other policies and
measures being considered by policy makers and negotiators
working to establish a framework to address climate change.
The deadline for a new international agreement has been set
for December 2009, when delegates will gather for a major
UN conference in Copenhagen, Denmark.
The event at Columbia University was organized by the
Earth Institute and the International Institute for Sustainable
Development (IISD). Nearly one hundred and fifty people were
in attendance, and others viewed and participated in the event
via live webcast, with the speakers fielding questions from
web participants in Canada, Kenya and Rwanda. The webcast
is available online at: http://www.earth.columbia.edu/articles/
view/1775

REPORT OF THE MEETING
OPENING OF THE MEETING
The event was opened by John Drexhage, Director of the
Climate and Energy Program at the International Institute for
Sustainable Development (IISD). He welcomed the speakers
and introduced the issue, stating that the real contribution of
the Kyoto Protocol will be that it was the first international
agreement to send a price signal on carbon. Looking forward,
he asked if future action on climate change requires radical
rethinking, or simply “getting out the wrinkles” of the existing
system.
KEYNOTE SPEAKERS
Yvo de Boer spoke first, arguing that it was futile to debate
carbon markets versus carbon taxes, because both are necessary.
Laying out some of the arguments for market approaches, he
noted that: private sector buy-in is essential and the private
sector prefers market approaches; market approaches allow
for dynamic efficiency, letting prices change as circumstances
change, while carbon taxes are stagnant; and markets promote
awareness and involvement.
Turning to the performance of the Kyoto mechanisms to date,
Yvo de Boer stated that the Clean Development Mechanism
(CDM) has met the goals for which it was designed, including
stimulating private sector involvement and identifying costeffective
mitigation options. He acknowledged the challenges
posed by balancing strict additionality and market efficiency,
ensuring that CDM projects contribute to sustainable
development in their host countries, and improving geographic
distribution of CDM projects. However, he argued that these
problems were not insurmountable and detailed ongoing efforts
to further address them.
He then identified market mechanisms (including capand-
trade systems) and governmental and intergovernmental
cooperation on taxes, standards and subsidies, as two broad sets
of tools to mobilize both public and private funds. Emphasizing
the magnitude of the task at hand, he stated that rejecting some
of these tools will not seem credible to those responsible for
making the tough choices that lie ahead.
Jeffrey Sachs then spoke, arguing that the current architecture
is not achieving very much. Asserting his skepticism about
taking a “Wall Street approach” to carbon, he argued that simple
approaches should replace attempts to design complex financial
instruments. He characterized the CDM as a small tool that will
not bring about the large-scale changes necessary in energy
production and the development and distribution of technology.
Jeffrey Sachs then identified four large architectural issues
that require addressing. First, while acknowledging the
importance of common but differentiated responsibilities, he
argued that the distinction between Annex I and non-Annex I
countries needs to change, and that all countries need to take on
some form of commitments. Secondly, he stressed the need to
mobilize tens of billions of dollars in global financing for, inter
alia, adaptation, technology transfer, and implementation. Noting
that the 2% CDM levy does not mobilize financing on this scale,
he suggested that carbon taxation may be able to do so. Thirdly,
he argued that the issue is bigger than simply pricing carbon,
and said regulatory options and technology policies – such as
grid design and acceptability of nuclear power – should come
first, followed by specific financial policies. Finally, he argued
that a global system of linked trading markets is neither feasible
nor desirable. Noting that economically there is little difference
between a tax and a tradable permit scheme with auctioning,
he suggested that a tax is simpler than “obtuse” tradable permit
systems, and it also allows one to set the price and increase it
as needed.
Sachs closed by stressing the urgency of development needs
and the importance of technological change. Noting the need
to generate funds for this, he suggested a short-term strategy of
taxing carbon to subsidize carbon capture and storage (CCS) and
avoided deforestation.

DISCUSSANTS AND RESPONSES
Klaus Lackner, Professor of Geophysics at the Earth Institute,
and Henry Derwent, President and CEO of the International
Emissions Trading Association (IETA), were invited to comment.
In his comments, Klaus Lackner stressed a central role for
CCS and suggested that a focus on carbon would drive pricing all
the way upstream to the well or point of import. He argued that
CCS could then set the price and allow for trading carbon coming
out of the ground with carbon going back in.
Henry Derwent acknowledged many of the benefits of taxes,
but stressed their political unpopularity. Pointing to the large
investments needed, he argued that economic instruments are
necessary to engage private industry, and that a whole range of
policy options are important to find the lowest-cost opportunities.
Yvo de Boer then spoke for a second time. He agreed with
Jeffrey Sachs on the need to move beyond the commitments
versus no-commitments framework. He said that upstream taxes
were politically difficult because oil producing countries were
unlikely to be supportive. He argued that national taxes may be
possible but that a global tax would not be feasible.
Jeffrey Sachs responded that a global tax would not be aimed
at sending a price signal, but at generating the needed financing.
He noted that the US may become more amenable to taxes as it
comes to grips with its sizable financial deficit and suggested that
an implicit target of between fifty and seventy-five dollars per ton
would drive technological change. He argued that discussions on
financial transfers to developing countries must be explicit rather
than implied in hidden, decentralized mechanisms, and suggested
involving developing countries by setting targets that reflect
currently-available technology, with adjustments as technologies
improve.

QUESTION-AND-ANSWER SESSION
The moderator, John Drexhage, chaired the question-andanswer
session, taking questions from participants at the venue
and from those following the discussion through the live webcast.
One online participant in Rwanda asked whether the CDM
may only apply in the future to least developed countries, with
the possibility of other mechanisms being made available to other
developing countries. In response, Yvo de Boer pointed to the
need for different approaches for different countries, based on
their incomes and other economic differences.
On a question about reducing transaction costs in the CDM
by taking programmatic approaches and thereby encouraging
more small-scale projects in east Africa, Yvo de Boer pointed
to ongoing discussions on this issue under the UNFCCC, while
Jeffrey Sachs stated that climate mitigation in that region should
be secondary to economic development and building a power
system. Sachs argued that money to drive this should not be
through the CDM but through large-scale development funds.
Similarly, while Yvo de Boer responded to a question on gender
issues in the CDM by urging attention on this issue wherever
possible, Jeffrey Sachs suggested that gender inequality is an
important development issue, but that it is “not the purview of the
Board of the CDM.”
The speakers also commented on the effect that the financial
crisis may have on climate change action. Henry Derwent noted
that global carbon prices are holding up, but that governments
may be less ambitious with their commitments as a result of the
crisis. Jeffrey Sachs pointed out that it may bring food security
and other issues to the fore. Yvo de Boer agreed that governments
may be less ambitious, but expressed hope that the financial
situation may be better by the time of the Copenhagen meeting in
December 2009. John Drexhage closed the meeting by thanking
the speakers, planners and all who had submitted questions.

UPCOMING MEETINGS
FORTY-THIRD MEETING OF THE CDM EXECUTIVE
BOARD: The Executive Board of the Kyoto Protocol’s Clean
Development Mechanism (CDM) will meet from 22-24 October
2008, in Santiago, Chile. For more information, contact: the
UNFCCC Secretariat; tel: +49-228-815-1000; fax: +49-228-815-
1999; e-mail: secretariat at unfccc.int; internet: http://unfccc.int
20TH MEETING OF THE PARTIES TO THE
MONTREAL PROTOCOL: This meeting is scheduled to take
place from 16-20 November 2008, in Doha, Qatar, in conjunction
with the 8th Conference of the Parties to the Vienna Convention.
For more information, contact: Ozone Secretariat; tel: +254-20-
762-3850/1; fax: +254-20-762-4691; e-mail: ozoneinfo at unep.
org; internet: http://www.unep.org/ozone/
FORTY-FOURTH MEETING OF THE CDM
EXECUTIVE BOARD: The meeting of the CDM Executive
Board will take place from 26-28 November 2008, in Poznan,
Poland. For more information, contact the UNFCCC Secretariat;
tel: +49-228-815-1000; fax: +49-228-815-1999; e-mail:
secretariat at unfccc.int; internet: http://unfccc.int/meetings/
unfccc_calendar/items/2655.php?year=2008
THIRTEENTH MEETING OF THE JOINT
IMPLEMENTATION SUPERVISORY COMMITTEE:
The Supervisory Committee for the Kyoto Protocol’s Joint
Implementation (JI) mechanism will meet from 26-28 November
2008, in Poznan, Poland. For more information, contact the
UNFCCC Secretariat; tel: +49-228-815-1000; fax: +49-228-815-
1999; e-mail: secretariat at unfccc.int; internet: http://unfccc.int/
meetings/unfccc_calendar/items/2655.php?year=2008
FOURTEENTH CONFERENCE OF THE PARTIES TO
THE UNFCCC (COP 14) AND FOURTH MEETING OF THE
PARTIES TO THE KYOTO PROTOCOL (COP/MOP 4):
UNFCCC COP 14 and Kyoto Protocol COP/MOP 4 are scheduled
to take place from 1-12 December 2008 in Poznan, Poland. These
meetings will coincide with the 29th meetings of the UNFCCC’s
subsidiary bodies and the fourth meeting of the Ad Hoc Working
Group on Long-Term Cooperative Action (AWG-LCA) and the
resumed sixth session of the AWG on Further Commitments
for Annex I Parties under the Protocol (AWG-KP). For more
information, contact: UNFCCC Secretariat; tel: +49-228-815-
1000; fax: +49-228-815-1999; e-mail: secretariat at unfccc.int;
internet: http://unfccc.int

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Kyoto Mechanisms Discussion Bulletin